rxChris

I live in California, and am interested in the $299 lease on offer that includes $2000 in rebates. The dealer is saying that sales tax needs to be paid on that $2000. Is this a legitimate charge paid to the state, or just another way for the dealer to make some extra money? I always thought that cash rebates either went to the customer tax free, or to the dealer to discount the car further.

TIA,

rxChris.

Sigma

In the vast majority of states, tax is applied on the negotiated price then rebates are taken off.

You're buying the car at the negotiated price. Rebates come from Mazda as a sort of 'thank you' at a later date. They just allow you to finance the car as if you already got that rebate.

It's basically the same thing as if you bought a Printer for your computer at Best Buy and it came with a mail-in rebate. You still have to pay the tax on the price even though the mail-in rebate might even be enough to make the item free. Just that car purchases have a more streamlined process.

rxChris

Thanks Sigma - but this is a lease. So you pay 8.25% on top of the lease amount, then Mazda gives you the $2000 back as a rebate - tax free, right? I'm still paying tax on the lease amount. In CA, tax is calculated on the lease payment, not on the selling price of the car. The only thing that may be applicable is Income tax on that $2000, I believe.

So the question still remains, do I need to pay 8.25% on the $2000.

TIA,

rxChris.

pebrinic

Chris, yeah you need to pay tax on any cap cost reductions (rebate, downpayment, trade-in). This is because you are taxed on the depreciation you have financed, not on the total value of the car (in most states, CA included). So, say the sales price of the car is 30 grand and the residual is 18, you have to pay CA sales tax on the 12 grand difference. They ask for the sales tax on the cap cost reductions upfront and then you pay the sales tax on the depreciation amount in your lease payments each month (factored into your total payment, with local property/use tax)